January 16, 2020 Practice Points

Discovery of Your Adversary’s Litigation Funding May Be Precluded

The defendants’ argument that the plaintiffs’ litigation funding was not only relevant, but a critical piece of information, was “flatly rejected.”

by Michael R. Lied

Litigation financing refers to any agreement under which a person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of a case.

In a recent multi-district litigation concerning the U.S. Food and Drug Administration and voluntary recalls of a generic prescription medication called Valsartan, the plaintiffs alleged that the defendants’ medication contained carcinogens that caused personal injuries and economic losses. The defendants requested discovery directed to plaintiffs’ litigation funding to discover whether the plaintiffs were backed by litigation funders, the details of the financing, and communications regarding the financing.

The plaintiffs argued that their private financial information was irrelevant to their claims and defenses and that the defendants had no legitimate need for the requested information. The plaintiffs, however, were willing to produce some documents for an in camera review.

The district court observed that courts are split on the issue and both sides can cite cases supporting their positions. The court decided, however, that litigation funding was irrelevant to the claims and defenses in the case and that the plaintiffs’ litigation funding was not discoverable.

The court went on to caution that it was not ruling that litigation funding discovery is off-limits in all instances. In cases where there is a showing that something untoward occurred, the discovery could be relevant. The court would order the discovery only if good cause existed to show the discovery was relevant to claims and defenses in the case. For example, discovery would be ordered if there was an adequate showing that a non-party was making ultimate litigation or settlement decisions, the interests of plaintiffs or the class were sacrificed or were not being protected, or if conflicts of interest existed. However, no such evidence had been produced by the defendants.

Even if the plaintiffs’ litigation funding was marginally relevant, the defendants’ requested discovery was denied because it was not proportional to the needs of the case.

The defendants’ argument that the plaintiffs’ litigation funding was not only relevant, but a critical piece of information, was “flatly rejected.” It was pure speculation to argue a potential litigation funder rather than the named plaintiff was the real party in interest. The defendants failed to cite any evidence that a third-party owned the rights to the action.

One of the primary reasons that courts have adopted a disclosure requirement is to assist judges with regard to possible recusal or disqualification decisions. The defendants had not raised this as a reason to require disclosure. In addition, in view of the court’s ruling that the plaintiffs’ litigation funding was off-limits because of relevancy and proportionality concerns, the court did not have to decide if the discovery was protected by the work-product doctrine. However, the court noted the weight of recent authority appeared to lean in this direction.

The case is worthwhile reading for any party either seeking, or resisting discovery of litigation funding information.

The case is In re Valsartan N-Nitrosodimethylamine (NDMA) Contamination Prods. Liab. Litig., No. 19-2875 (RBK/JS), 2019 U.S. Dist. LEXIS 160051 (D.N.J. Sep. 18, 2019).

Michael R. Lied is a litigator with Howard & Howard Attorneys, PLLC in Peoria, Illinois.

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